PRESS RELEASE
Questions and answers at the press conference, 5 October 2022

Question: Mr Sejko, are you informed on the fiscal amnesty draft law, and have you made any proposal for its amendment?

Governor: As far as I know, the fiscal amnesty draft law is being revised. If I am not mistaken, they are still working on the compilation of the fiscal amnesty draft law, as confirmed by the Minister of Finance and Economy in her interview. In this light, the Bank of Albania was required to deliver its opinion, and we have already provided our view on the fiscal amnesty draft law. In addition, we have communicated and provided our opinion also at the Assembly of the Republic of Albania as well as in the previous press conference. In the context of the specific draft, which is still being essentially reviewed, I would like to reiterate that the Bank of Albania considers that the fiscal amnesty will bear both costs and benefits. The objective of central bank is to increase financial inclusion, driving currency outside the banking system into the system, and in turn to formalize the economy. In this view, financial education underpins the strengthened financial inclusion and the formalisation in terms of finances. To this end, fiscal amnesty would have a positive impact. That is “all but certain”.  In addition, fiscal amnesty would provide further liquidities in the economy and would help the budget to meet its needs. On the other hand, fiscal amnesty costs are related to the risk regarding the inclusion of money laundering. The opinion of the Bank of Albania in this regard is clear: the risk of money laundering in this amnesty, as well as the money originating from criminal activity and corruption should be avoided. We have emphasised that fiscal amnesty should be analysed as a project, in order to turn it into an instrument to further improve fiscal management. In practice, it should serve to increase income and avoid fiscal evasion from this moment forward. This fiscal amnesty should not give the impression that will take place continuously. If this amnesty would take place and function, it should convey the clear message that after this one there would be no more hidden income, while taxes should be paid regularly. It means we should absolutely minimise fiscal evasion. In case these objectives would be fulfilled, certainly the Bank of Albania considers that fiscal amnesty is in function of the economy’s formalisation and particularly, as our specific objective: increasing financial inclusion, which directs currency outside banks into the banking system. This is the Bank of Albania’s opinion of, which we have re-emphasised many time related to fiscal amnesty.

Question: That is the fourth time we have increased the policy rate, if I am not mistaken. If we have to face with a further surge in inflation, what monetary policy stance will the Bank of Albania implement? 

Governor: As we have emphasised in the monetary policy statement, the Bank of Albania has clearly stated that we will continue the normalisation of monetary policy stance related to inflation rise.

Central banks, in the region and more broadly, as well as the Bank of Albania, have embarked on monetary policy normalisation process. You have seen that central banks, worldwide, in Europe, the USA and in other countries have raised the interest rates. Bank of England has also raised the interest rates. The climbing inflation conditions the increase of interest rate or the speed of monetary policy normalisation. The Bank of Albania will follow the same path. Inflation figure will determine our reaction. Thus, if inflation will increase at a swift pace, we will react through our monetary policy normalisation. In contrary, we will act according to circumstances, as our main objective is to prevent or control inflation and preserve price stability, while carefully considering the economic growth rate. Thus, the gradual normalisation we have undertaken aims to support the economic growth. But, this is not certain. We cannot sacrifice price stability. In contrast, the negative impact originating from the upsurge in prices on economic growth would have been rather high, for both households and enterprises, and also for the state budget. As history has shown this is very clear now. In practice, central banks are reacting towards the increase of interest rate.  We cannot precisely tell what will be the monetary policy stance without having the next figures on the level of inflation coupled with the other macro-economic indicators of the country, which are made available periodically.

Question: What are the fiscal policies or measures that the Bank of Albania would suggest to the Government in order for the latter to be in line with the monetary policy given the high inflation rate?   

Governor: We have communicated in a clear and continuous manner our recommendations related to fiscal policy.  The Bank of Albania provides its opinion on the budget, every year, to the Assembly of the Republic of Albania. In this specific case, our views have been explained. First, we have recommended to carefully considering budget level, its reduction, which is aiming towards fiscal consolidation. In view of this difficult situation, attention should be paid to those most in need. Thus, those in need should be the first to be considered. For example, there may be compensation of energy prices and for all the other prices that may increase further and which considerably impact those in needs, but, without jeopardising public debt. The management should take place in both directions. These are the two crucial elements I can mention at the moment. Certainly, there is a list of recommendations we have provided to the Ministry of Finance and Economy and to the Albanian Government in terms of fiscal policy. These are the two elements, I would mention regarding the advice to the Government. Thank you!

Question: In recent weeks, on-line media has addressed the purchasing of a foreign-capital bank from a domestic-capital bank. Has there been any application to the Bank of Albania fur such a transaction, and if so, what is the current view regarding the further consolidation of banking system given the ever increasing presence of domestic capital?

Governor: We have not received any official application from any commercial bank, neither foreign nor domestic one, regarding the change of shareholders. You have witnessed the essential changes in the structure of the Albanian banking system throughout this period. Certain foreign banks - some banks mainly with European capital - and others as well (as it was a bank with the capital from Malaysia) - have been withdrawn from our market.  These banks have withdrawn from Albania and from the entire region as well. It means the reason has not been the removal from the Republic of Albania, but various issues. But, the main reason was the consequence from the global financial crisis of 2008 in their balance sheets. The global financial crisis hit the balance sheets of these banks, and the ECB put conditioned them: either to raise their capital or close their subsidiaries in some countries. These banks had to close their subsidiaries due to their inability to raise the capital, and Albania, like other regional countries was affected as well.

To be sincere and transparent, this used to be a difficult and stressful process.  Throughout our first term, we have dealt with many crises running: the debt crisis in Greece; and next in the euro area; the consequences from the earthquake and the pandemic; in addition to the other elements originated from the global financial crisis of 2008, which required for a sound banking system. We aimed at having an economic growth, and also non-performing loans trending downwards. The non-performing loans ratio used to be very high, up to 25%, mainly originating from the activity of these European banks, as they used to have the highest share.

Absolutely, we have tried to have in the domestic market the presence of other banks with 100 years of banking history and with European origin. However, there was no interest, for the period being, due to the above-stated reasons. Changes in the shareholder’s structure drove to an increase in the domestic capital in the banking system. Fortunately, the implemented changes brought about more positive results, both visible and measurable, in the financial system and banking system. The presence of domestic shareholders has been a good surprise, for us as the central bank, and to the Albanian economic reality. Non-performing loans ratio has been declining. Lending, as an instrument supporting economic growth, has continued to pick up, reaching the 14% increase at an annual base. We should remember that five years ago, lending experienced an anaemic growth. This was a consequence of the restrictions on these banks imposed by the European groups or authorities. They were not adequately active and they were almost unable to perform their role in the Albanian economy.  Their replacement by new shareholders, who have the ambition to operate in the market, to increase and generate profits for their own and the market, drove credit to grow at 14%, while always keeping in mind we are in a crisis period. It cushioned the balance sheets of the financial system to not deteriorate, and enabled the capital adequacy ratio (which is one of the main indicators of the banking system soundness) remaining at rather high levels. The average capital adequacy ratio for the banking system is 19%, compared to 12% minimum required by the Bank of Albania.

Thus, we have a short-term experience of about five years of structural change in the banking system and of increase in the specific share of domestic shareholders as a ratio to foreign shareholders, which has resulted a positive one so far.

Of course, we are going through hard times and this is a new crisis.  We overcame the crisis from the pandemic, which was a test, and Albania showed considerable resilience. Overall, results in all macroeconomic indicators were more positive than our expectations and calculations in addition to those from international institutions. We hope the same thing happens again. The Bank of Albania will deploy all the instruments, both in monetary policy direction and financial stability direction, alongside the macro-prudential instruments for safeguarding the financial stability.  Price stability and financial stability are closely related for a final objective: growth of economic, increase the welfare of citizens, and support to enterprises for growth.

Going back to the question, we do not have any concrete information in this regard.  Throughout this period, as structural changes related to selling and buying of banks, even removal from Albania have taken place, there is a lot of information in the market, which are rumours. Many changes have taken place over this period. The Supervision Department, alongside with the other departments of the Bank of Albania have gained experience accordingly. In any case of submitted application, either now or in the future, the Bank of Albania will accurately implement all the legal and regulatory requirements, in collaboration with international partners. 

Yet, we do not have any official concrete information, but in any case there would be no surprise if this happens. However, it should be re-emphasised that the change in structure and the increase in the capital of domestic shareholders have yielded positive effects in the financial system and in the Albanian economy.